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Japan current account swings to deficit as overseas earnings fall

TOKYO (Reuters) - Japan's current account swung to a deficit in June for the first time in five months due to a slump in earnings from overseas investments, but exports accelerated in an encouraging sign that external demand is improving.

The current account deficit was 399.1 billion yen (£2.32 billion), more than the median estimate for a 324.3 billion yen deficit as the income surplus, which measures profits from investment abroad, fell 37.7 percent from a year ago.

The Bank of Japan is sure to debate its rosy forecasts that exports will pick up and offset a temporary slowdown in domestic demand at a policy meeting ending later Friday as recent data on exports and industrial output have been weaker than expected.

Exports rose 4.4 percent in June from a year ago, versus a 2.0 percent annual gain in May, the current account data showed.

Imports jumped an annual 13.9 percent, following a 0.4 percent annual increase in May. As a result, the trade deficit in June widened slightly to 767.7 billion yen.

The income surplus was 418.2 billion yen in June, down 37.7 percent from the same period a year earlier, the current account data showed. In May the income surplus fell an annual 3.2 percent.

The BOJ is set to maintain its massive asset purchases and its optimistic view on the economic outlook at the meeting ending Friday.

Some BOJ policymakers may propose offering a bleaker view on exports and output than last month, given the recent gloomy data that cast doubt on its projection that the economy will fairly quickly ride out the pain from a sales tax hike in April.

A Reuters poll showed analysts expect gross domestic product data, due to be released on Aug. 13, to show the economy shrank at an annualised 7.1 percent in the second quarter.

Some private-sector analysts say such a big contraction in the second quarter may mean economic growth in the current business year will far undershoot the BOJ's current projection of an 1.0 percent increase.